Empire State Today

New York’s hotel owners and hospitality businesses are in trouble, like many hospitality businesses in other locations, which are all struggling with the loss of business from shutdowns meant to slow the spread of COVID-19. 

They are also struggling to meet the demands of commercial mortgage-backed security (CMBS) lenders, who charge exorbitant fees while their borrowers are shut down and struggling to pay everyday bills.

Texas Rep. Lance Gooden wants Congress to take action and stop CMBS from selling assets for any amount they can get and leaving their borrowers in a world of hurt.

“The special servicers representing the CMBS lenders seem to be solely focused on ensuring the CMBS lenders are satisfied instead of taking the borrowers’ needs into account,” Gooden told the Lone Star Standard. “They simply want to grab the assets, sell them for any amount, take the cash, and be on their way. It’s shameful to me that these lenders don’t seem to care how their actions are affecting so many small business owners and employees.”

Major commercial property owners in the hospitality industry and other industries are asking that Gooden and other members of Congress take action to stop CMBS lenders from acting in such a sketchy way.

According to the Miami Courant, Rialto Capital Management is demanding that Ashford Hospitality pay its loan in full, in addition to some pretty large fees. Gooden notes that Rialto is owned by a private equity group in New York, Stonepoint Capital.

“I have reached out to them several times to hear their side of the story, but they have refused to visit with me. I suspect this is because they know their actions are questionable," Gooden said. 

The management at Rialto did not respond to requests for an interview.

“I’ve even heard of situations where lenders are charging exorbitant fees,” Gooden said. “Many borrowers aren’t able to afford their own overhead or debt service and are struggling to make ends meet. It seems unimaginable to me that lenders would further take advantage of these borrowers by charging these fees given the current circumstances.”

Gooden has been in discussion with Rep. Maxine Waters to take action in the House Financial Services Committee. Waters is the chair of that committee.  

“In many cases, the CMBS lenders are operating behind the scenes advocating for their own interests. Nobody benefits when small businesses go under and we must put protections in place to ensure this doesn’t happen," Gooden said.

Although it’s not an organization that focuses solely on the hotel industry, the International Council of Shopping Centers (ICSC) is cheering the letter that Gooden and his colleagues submitted to Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell.

The letter is a bipartisan effort of more than 100 state representatives who seek a temporary relief plan for commercial real estate borrowers. In the letter, the representatives ask that the two men take action to protect the $540 billion CMBS market.

“Industries with CMBS debt have a particular challenge in that loan covenants are governed by multiparty state law contracts, which typically prohibit additional indebtedness barring borrowers from turning to banks for help,” said ICSC President and CEO, Tom McGee. “CMBS borrowers are tied to a different set of rules than typical borrowers and they need relief during this time as well.